The Big Market vs. Small Market Mirage (Part 4 of 4)

Tom Brady just defeated the NFL in court when a judge ruled that his league-mandated suspension did not pass legal muster.  Wow, seeing all-powerful commissioner Roger Goodell humbled and looking for a place to hide sure was a first. Talk about the perfect conclusion for this series on the monopolistic sports business ecosystem. If something as innocuous as a suspension for breaking a rule in the rule book on the inflation of balls does not even stand up in a court of law, how in the world would a salary-restricting cap hold up?

Is this whole sports business ecosystem really an ego system for sports owners? They are allowed to create their own rules and institute self-serving policies like the salary cap, disguised as a means to preserve competition on the field.

Just getting rid of the salary cap itself would not make a very big difference right now. It’s currently a ‘damned if you do damned if you don’t’ system. The one major sport without a salary cap shows what happens when rich owners compete against owners who don’t want to spend or choose to be thrifty with their money and just enjoy the perks of revenue sharing. Starting on opening day this season, the Dodgers’ opening day payroll was about $207 million more than the Marlins! With that kind of financial disadvantage, the Marlins are about as competitive as an American league pitcher is at the plate in an interleague game.

Under a salary cap, players are denied the opportunity to have their employers compete at market value for their services, and without a salary cap, “big market” owners create an  uneven competitive landscape.  Is the future this bleak? No way! The playing field just needs to be cleared and a new game started. A start might be to step out of the  “big market vs. small market” mentality.

The small market vs. big market paradigm is simply an outdated concept. With multi-billion dollar television contracts to be shared and billionaires all over the place, can any sports owner really embrace that they are a small market operation?  It seems like teams who hide behind the “small market” moniker are just owners who prefer to profit by revenue sharing  instead of doing what is takes to win games. Oh, and hey Billy Bean and the A’s, if Oakland really is a “small market”, I have a bridge to sell you, like the one that makes Oakland only about 12 miles from San Francisco.

So what should the future business atmosphere of sports look like? I have two possible solutions:

Option 1: The reason why the term “small market vs. big market” is inaccurate is that America currently has  513 billionaires, and quite a few seem interested in owning a sports team. So bring in the billionaires! That’s right, make it a billionaires club, people who are there for their own competitiveness and thrill of owning a team. If an ego system is what we have…then let’s bring on egos…I mean REAL egos. Not the rich people who use power and influence to institute a salary cap and revenue sharing. The uber rich who don’t need to depend on annual profits or safety nets.

Billionaires are lining up and almost begging to buy sports franchises these days. Last year Steve Ballmer was chosen from a slew of bidders to pay $2 billion for the Clippers, beating out names like David Geffen and Larry Ellison. $2 billion was about twice what was considered market value for the team at that time, and Ballmer paid 12.1 times the expected 2014 revenues of the team. Larry Ellison has been pleading to buy a team for years and nobody will sell to him. Billionaire Mark Cuban took over a moribund Dallas franchise and has turned it into a model franchise and won a championship. If a sports owner puts profit maximization as the number one goal, this does not always go hand in hand with winning.

Watching a bunch of billionaires compete and in a business environment, would be almost as interesting as the games on the field.

This may not be a very realistic option. The currently engrained owners who have  created a system where they can’t lose, are bunkered in by monopoly power and socialism, and they love the influence and attention of being a sports owner.

Option 2: Each community owns their team, like the Green Bay Packers model. The Packers are governed by a board of directors and a seven member executive team, and all profits are invested back in the team. They also have 112,120 stockholders holding 4,750,937 total shares.  If local communities owned all their sports teams, the games and rivalries would be even more fun than they are now.

It’s hard to see how either of these options are realistic though. The owners just don’t want to sell, even at prices skyrocketing above market value. The Clippers were essentially forced to sell, and the number of offers at way above market value show the demand. The owners main goal now is probably to keep all their business practices out of a court of law, lest the Tom Brady decision is just the tip of the iceberg.

How could the community option come to pass? Nothing short of eminent domain could get this done.

Let’s eliminate all these made up business rules that would leave even the best economics professor in the world with a spinning head, wondering whether we’re dealing with a monopoly or a schizophrenic version of socialism. Preventing free market bidding for player salaries while guaranteeing a profit through revenue sharing is no way to run sports.

I’d like to see the Green Bay Packers model instituted in the future. Power to the people! At least in the world of sports. I’ll leave breaking apart the power of Super PACS and its affect on government for another day.

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One thought on “The Big Market vs. Small Market Mirage (Part 4 of 4)

  1. Let me throw something at you, you may not have considered…maybe one more bonus blog:

    THE CONCEPT OF RELEGATION AND PROMOTION

    vis-a-vis the English Premier League.

    Personally, I love the concept:
    1) makes every game meaningful, from the bottom to the top flights…
    2) a nice financial tiering system, sort of like revenue sharing
    3) makes for some great stories…big teams getting relegated… Cinderella-story teams making it to the Big Show (for maybe just one season…)

    What fun!

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